Verenex Energy shares drop 23% as dispute with Libya escalates

Shares of Verenex Energy Inc. plunged more than 23 per cent Monday as its dispute escalated with Libya's state-run National Oil Corp. over the oil company's proposed sale to China National Petroleum Corporation International.

Verenex announced Monday it has received two letters from NOC accusing the Calgary-based company of being improperly pre-qualified to bid for a property it acquired in 2005, which gives it about 2.15 billion barrels of crude oil reserves.

Verenex said it considers the allegations to be "without merit and vigorously denies them."

The letters are the latest indication that NOC intends to scuttle the sale, which would see CNPCI pay $10 a share to acquire Verenex in a deal worth $499 million.

Investors responded to the news by sending Verenex shares down $1.98 to $6.60 in trading on the Toronto Stock Exchange.

NOC has said several times that it intends to exercise its pre-emptive right to acquire Verenex on the same terms and conditions offered by CNPCI.

NOC approval is required for any change in control of Verenex under the terms of an exploration and production sharing agreement.

"Investors are cautioned that there can be no assurance that consent to the offer by CNPCI will be received soon from Libyan authorities, or that a sale transaction will be concluded on the terms contemplated, or at all," Verenex said in a statement.

Verenex said NOC had indicated earlier that the company would have to pay an approval bonus to obtain NOC's consent to the sale. Verenex estimated the bonus would amount to $46.7 million.

The company said the latest actions by Libyan authorities suggest they are either trying to get a bigger approval bonus or drive down the purchase price for NOC to acquire Verenex.

The company said it was considering all options, including legal action, and that the Canadian government "has expressed its concerns" to the Libyan government over the matter.

Verenex said it has sent a letter to CNPCI extending the outside date under their agreement to Aug. 24.